JPMorgan Chase and Goldman Sachs are benefiting from a boom in dealmaking activity just as trading revenues plunge from the record levels during the early stages of the Covid-19 pandemic.

Both Wall Street banks on Tuesday reported a surge in fees from advising on corporate acquisitions and initial public offerings during the second quarter, helping to offset declining returns from bond and stock trading.

JPMorgan announced record global investment banking fees of $3.6bn, while Goldman’s fees of $3.6bn were just shy of the record $3.7bn earned in the first three months of 2021.

David Solomon, Goldman’s chief executive, said the bank was braced for a record deal backlog in a sign of more M&A to come. He said the boom was being driven by a desire for scale and confidence about the recovery among chief executives, as well as a push by companies to digitise their businesses.

“Obviously, if there was some sort of a disruption or an economic slowdown sometime in the future, that would wear on confidence and slow that, but that doesn’t seem likely given where we are positioned today,” Solomon said during a call with analysts on Tuesday.

Column chart of  showing JPMorgan fees from investment banking and trading

His comments were echoed by Jeremy Barnum, JPMorgan’s chief financial officer. “Looking ahead to the third quarter, the pipeline remains very strong,” he said. “We expect M&A activity and the IPO markets to remain active.”

One potential roadblock for M&A activity is the executive order signed last week by President Joe Biden urging stronger enforcement of US antitrust laws.

“We’ll be watching it very closely and doing a lot of work to see how that all evolves with agencies,” Solomon said. “Certainly, I think there’s a tipping in the balance that could, in the margin, have some impact on certain transactions.”

Overall, JPMorgan’s net income more than doubled to $11.9bn in the quarter, as the release of $3bn in reserves for potential credit losses flattered its results. Revenues fell 8 per cent as lower interest rates, lacklustre loan demand and the trading slowdown took a toll.

Goldman said its revenue rose 16 per cent to $15.4bn, surprising analysts who had predicted a decline and reflecting a strong performance in its asset management unit in addition to the bumper dealmaking revenues.

The dealmaking frenzy had been fuelled by rock-bottom interest rates and the effect of quantitative easing programmes on the economy, said Mark Doctoroff, co-head of MUFG’s global financial institutions group.

Column chart of  showing Goldman Sachs fees from investment banking and trading

But he said those macroeconomic factors had also created headwinds for banks’ lending businesses, adding that the boost from investment banking would probably fade, particularly if interest rates rise.

“Right now you have a counterbalance with the M&A,” he said. “This is not normal activity and a lot of these things will probably reverse themselves, but that’s not a bad thing.”

Analysts said that in addition to fees from M&A, banks could also profit from follow-on transactions in areas such as acquisition financing and hedging.

“You had a record first half of the year for investment banking fees. We expect results to remain fairly strong for the intermediate term,” said Jason Goldberg, a banking analyst at Barclays.

Goldman was the top fee-earning bank in the first six months of 2021 from M&A, with JPMorgan second, according to Refinitiv data. For global IPOs, JPMorgan was the top fee earner, with Goldman ranked third.*

“Both companies, particularly Goldman Sachs, posted very strong, investment banking fees relative to expectations and to earlier periods,” said Gerard Cassidy, an analyst at RBC Capital Markets. “The pipelines for advisory fees appear to be very robust.”

Goldman shares were down about 1.3 per cent, while those of JPMorgan were 2.6 per cent lower in midday New York trading. Wall Street rival Morgan Stanley reports earnings on Thursday.

Additional reporting by Eric Platt in New York

*An earlier version of this article misstated the period covered by the Refinitiv data